2011 economy set to make real progress

WASHINGTON - As 2011 begins, the United States appears poised for its strongest year of economic growth since the recession began three years ago.

WASHINGTON — As 2011 begins, the United States appears poised for its strongest year of economic growth since the recession began three years ago.

Although plenty of risks remain that could undermine the recovery, signposts for the economy generally are looking up: The pace of growth accelerated in the final months of 2010, according to a variety of indicators, following a lull over the summer. A wave of government efforts to boost growth is starting to take effect, including a payroll-tax cut beginning Saturday and the delayed benefits of a massive Federal Reserve action. American consumers have made progress paying down their debts and increasing savings. And the stock market has risen steadily in recent months, lifting businesses’ confidence and consumers’ wealth.

More generally, a recovery that seemed tentative and halting a year ago now appears to be durable and more entrenched, having weathered its soft patch earlier in the year. The forecasting firm Macroeconomic Advisers estimates that the U.S. economy will grow 4.4?percent in 2011; Moody’s Analytics expects 3.9 percent growth; IHS Global Insight envisions 3?percent growth.

Any of those numbers would represent an improvement over 2010. Although official government numbers are not out yet, gross domestic product looks to have grown 2.7 percent this year, Moody’s estimates.

“The economy is on sturdier legs now,” said Robert Dye, senior economist at PNC Financial Services Group. “We’re making a transition to a broader, more durable recovery.”

Economic news released yesterday backed up that theory:

• Applications for unemployment benefits fell last week to the fewest since July 2008, the Labor Department reported. They totaled 388,000, lowering the four-week average to 414,000. Until mid-October, the four-week average had been stuck above 450,000 for most of the year.

“We’re starting to see a pickup in job growth,” said Conference Board economist Kenneth Goldstein. “We may even get to a point, conceivably by spring, where the consumer is going to say that it no longer feels like we’re still in a recession.”

Goldstein expects the economy to generate 100,000 to 150,000 jobs a month by spring, up from an average 86,500 a month in 2010.

But that’s still not enough to cause a big drop in the unemployment rate.

• Businesses expanded in December at the fastest pace in two decades. The Institute for Supply Management-Chicago Inc. said its business barometer rose to 68.6 this month. That exceeded the most-optimistic forecasts and was the highest reading since July 1988. Readings greater than 50 signal expansion. Increases in business investment on new equipment and in exports to emerging economies will keep factories churning out goods in the coming year, contributing to the recovery.

• The National Association of Realtors said its pending-home-sales index notched a 3.5 percent increase in November, from 89.1 in October to 92.2. But housing’s recovery remains slow at best.

But Dye and other forecasters acknowledge risk factors that could reduce the pace of growth or even spark another recession. State and local governments are shrinking, which is sure to be a headwind on growth and could spiral into something worse if a crisis emerges in the market for municipal bonds. Financial troubles in Europe could spill over into U.S. markets. The price of oil and other commodities could rise toward 2008 highs, reducing Americans’ disposable income.

And U.S. interest rates could rise sharply if investors lose faith that long-term budget deficits will be reduced, that the Fed will do what is necessary to keep inflation from spiking, or that President Barack Obama and congressional Republicans can reach compromises to keep the federal government functioning.

“The biggest threat to the economy is that we could see bond investors start to sell off their holdings rapidly, leading to everybody exiting the door at the same time, and rates move up rapidly,” said Bernard Baumohl, chief global economist at the Economic Outlook Group, a consultancy. “But the bottom line is that the prospect of a double-dip recession has really diminished compared with a year ago.”

Information from the Associated Press, MarketWatch and Bloomberg News was included in this story.

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